TERM SHEET

“SERIES A” ROUND OF FINANCING OF [COMPANY NAME]

Amount of Investment: $[AMOUNT]

Investors: [LIST INVESTORS]

Type of Security: Series A Convertible Preferred Stock

Pre-money Valuation: $[AMOUNT]

Capital Structure Following Series A Round:

Existing holders of Common Stock [NUMBER]%

Option Pool [NUMBER]%

Holders of Series A Preferred Stock [NUMBER]%

Total 100%

Use of Proceeds: The Company shall use the proceeds from this financing for working
capital purposes.

Dividends: The Company will not pay dividends on its shares of Common Stock or
any other stock which is junior to the Series A Preferred Stock unless a
like dividend is paid on all shares of Series A Preferred Stock on a pro
rata “as converted” basis.

Conversion: Each share of Series A Preferred Stock shall be convertible, at any time,
at the option of the holder, into shares of Common Stock, at an initial
conversion ratio of one share of Common Stock for each share of Series
A Preferred Stock. Mandatory conversion of the Series A Preferred Stock
upon the effectiveness of a registration statement covering a firmly and
fully underwritten public offering of Common Stock of the Company by a
reputable underwriter acceptable to the Investors at a price which equals
or exceeds five times the purchase price per share of the Series A
Preferred Stock and where the aggregate gross proceeds received by
the Company exceeds $25 million (a “Qualified Public Offering”).

Term Sheet Page 1 of 5

Anti-dilution: The terms of the Series A Preferred Stock will contain standard
“weighted average” anti-dilution protection with respect to the issuance
by the Company of equity securities at a price per share less than the
applicable conversion price then in effect, subject to standard and
customary exceptions. The conversion rate of the Series A Preferred
Stock into common stock will be adjusted appropriately to account for
any stock splits, re-capitalizations, mergers, combinations and asset
sales, stock dividends, and similar events. Anti-dilution protection shall not
be triggered by the issuance of up to 1,000,000 shares of Common Stock
(or options therefor) issued in accordance with the Company’s Stock Option
Plan.

Voting Rights: On all matters submitted for stockholder approval, each share of Series
A Preferred Stock shall be entitled to such number of votes as is equal to
the number of shares of Common Stock into which such shares are
convertible. In addition, the Company shall not, without the prior consent
of the holders of at least a majority of the then issued and outstanding
Series A Preferred Stock, voting as a separate class:

a) Issue or create any series or class of securities with rights superior to

or on a parity with the Series A Preferred Stock or increase the rights
or preferences of any series or class having rights or preferences
that are junior to the Series A Preferred Stock so as to make the
rights or preferences of such series or class equal or senior to the
Series A Preferred Stock.

b) Pay dividends on shares of the capital stock of the Company.

c) Effect any exchange or reclassification of any stock affecting the

Series A Preferred Stock or any re-capitalization involving the
Company and its subsidiaries taken as a whole.

d) Re-purchase or redeem, or agree to repurchase or redeem, any

securities of the Company other than from employees of the
Company upon termination of their employment pursuant to prior
existing agreements approved by the Board of Directors of the
Company.

e) Enter into any transaction with management or any member of the

board of directors, except for employment contracts approved by the
Board of Directors and transactions entered at arms-length terms
which are no less favorable to the Company than could be obtained
from unrelated third parties.

f) Effect any amendment of the Company's Certificate of Incorporation

or Bylaws which would materially adversely affect the rights of the
Series A Preferred Stock.

g) Incur or guarantee debt in excess of [AMOUNT].

h) Voluntarily dissolve or liquidate.

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 i) Effect any merger or consolidation of the Company with or into
another corporation or other entity (except one in the holders of the
capital stock of the Company immediately prior to such a merger or
consolidation continue to hold at least a majority of the capital stock
of the surviving entity after the merger or consolidation) or sell, lease,
or otherwise dispose of all or substantially all or a significant portion
of the assets of the Company.

j) Change the size of the Board of Directors or change any procedure

of the Company relating to the designation, nomination, or election of
the Board of Directors.

k) Amend, alter, or repeal the preferences, special rights, or other

powers of the Series A Preferred Stock so as to adversely affect the
Series A Preferred Stock.

l) Make capital expenditures of more than [AMOUNT] in a single

expenditure or an aggregate of [AMOUNT] in any twelve-month
period.

Liquidation Preference: The holders of Series A Preferred Stock shall have preference upon
liquidation over all holders of Common Stock and over the holders of any
other class or series of stock that is junior to the Series A Preferred Stock
for an amount equal to the greater of (i) amount paid for such Series A
Preferred Stock plus any declared or accrued but unpaid dividends, and
(ii) the amount which such holder would have received if such holder’s
shares of Series A Preferred Stock were converted to Common Stock
immediately prior to such liquidation. Thereafter, the holders of Common
Stock will be entitled to receive the remaining assets. For purposes of
this section, a merger, consolidation, sale of all or substantially all of the
Company's assets, or other corporate reorganization shall constitute a
liquidation, unless the holders of at least a majority of the Series A
Preferred Stock vote otherwise.

Board of Directors: The Board of Directors of the Company shall be composed of five
members. Of these five members, the holders of the Series A Preferred
Stock shall have the right to designate two directors (one of such two
directors to be designated by ABC Ventures, the other by XYZ Capital),
and the founders of the Company shall have the right to designate two
directors. The remaining director shall be designated by such four
directors.

Options and Vesting: All stock and options held by founders, management, and employees
shall vest over a four-year period. Stock currently held by founders will
be considered to be [%] vested as of the closing of this financing with the
balance to vest in equal monthly installments over four years. All others
shall vest in equal monthly installments over four years with a one-year
cliff at the beginning of the vesting term. Change of control provisions to
provide for no more than an additional [%] for founders and select
management and one year for all others.

Term Sheet Page 3 of 5

Registration Rights: Commencing on the earlier of three years from the closing or six months
after the effective date of the Company's first public offering, holders of
shares of Series A Preferred Stock or shares of Common Stock issued
upon conversion thereof ("Registrable Stock") shall have the right to
demand two “S-1” registrations with aggregate gross offering price in
excess of [AMOUNT] upon customary terms and conditions.

The holders of Series A Preferred Stock will also be entitled to

“piggyback” registration rights on Company registrations.

The holders of Series A Preferred Stock will also be entitled to unlimited

registrations with at least [AMOUNT] in aggregate gross offering price,
on customary terms and conditions.

The Company will bear all expenses related to all registrations and
underwritings.

Affirmative Covenants: While any Series A Preferred Stock is outstanding, the company will:

a) Maintain adequate property and business insurance.

b) Comply with all laws, rules, and regulations.

c) Preserve, protect, and maintain its corporate existence; its rights,

franchises, and privileges; and all properties necessary or useful to
the proper conduct of its business.

c) Submit all reports required under the Internal Revenue Code and the
regulations promulgated thereunder.

d) Cause all key employees to execute and deliver non-competition,

non-solicitation, non-hire, non-disclosure, and assignment of
inventions agreements for a term of their employment with the
Company plus one year in a form reasonably acceptable to the
Board of Directors.

e) Not enter into related party transactions without the consent of a

majority of disinterested directors.

f) Reimburse all reasonable out-of-pocket travel-related expenses of

the Series A Preferred Stock directors.

Financial Statements and Reporting:

The Company will provide all information and materials, including,

without limitation, all internal management documents, reports of
operations, reports of adverse developments, copies of any management
letters, communications with shareholders or directors, and press
releases and registration statements, as well as access to all senior
managers as requested by holders of Series A Preferred Stock. In
addition, the Company will provide the holders of Series A Preferred
Stock with unaudited monthly and quarterly and audited yearly financial
statements, as well as an annual budget.

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Redemption:
Right of First Refusal:
Right of First Refusal and Co-sale:
Other Provisions:
Expenses:
Conditions to Closing:
[INVESTOR NAME]
[REPRESENTED BY NAME & TITLE]
Term Sheet
Commencing with the date that is five years from the date of closing and
on each one-year anniversary of such date thereafter, holders of at least
a majority of the then issued and outstanding shares of Series A
Preferred Stock may request the Company to redeem their shares at a
price equal to the original purchase price for such shares plus any
declared but unpaid dividends, with 1/3 of the shares to be redeemed
shall be redeemed on such redemption date, an additional 1/3 on the
date that is one year from such date, and the remaining 1/3 on the date
that is two years from such date.
Holders of Series A Preferred Stock shall have a pro rata right, based on
their percentage of fully diluted equity interest in the company, with an
under subscription right up to the total number of shares being offered, to
participate in subsequent stock issuances.
In the event that any of the Founders and existing executive
management propose to sell their stock to third parties, the Company
shall have the first right to purchase the securities on substantially the
same terms as the proposed sale; the Series A Preferred Stockholders
shall next have said right according to respective percentage ownership
of Series A Preferred Stock or to sell proportionate percentage pursuant
to co-sale rights. Such rights shall terminate upon a Qualified Public
Offering.
The purchase agreement shall include standard and customary
representations and warranties of the Company, and the other
agreements prepared to implement this financing shall contain other
standard and customary provisions. Definitive agreements will be drafted
by counsel to the Investors. This term sheet is intended by the parties to
be non-binding.
The Company will reimburse the holders of Series A Preferred Stock for
reasonable legal fees in connection with the transaction, payable at
closing and only in the event that the transactions contemplated by this
term sheet are consummated, up to a limit of [AMOUNT].
Closing shall be subject to the standard and customary conditions,
including the completion of due diligence and the delivery to the investors
of a legal opinion of counsel to the Company, regarding standard and
customary matters and satisfactory to the Investors and their legal
counsel.
[COMPANY NAME]
[REPRESENTED BY NAME & TITLE]
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